China Infrastructure Investment Must Grow

Beijing will increasingly focus on China infrastructure projects over the next few decades. They realize that a robust economy depends on reliable transportation and telecommunications,

From the late 1990s until now, over 100 million Chinese benefited directly from power and telecommunications upgrades. Investment in rural roads grew by a massive 51% annually, one of the world’s fastest, between 2001 and 2004.

China has ambitious plans for the future. They aim to bring the nation’s infrastructure up to the level of a high-income country while using efficient transport to connect regions.

However, not just China but the entire global economy will weaken in 2016 and beyond. China needs to complete its infrastructure projects ahead of their scheduled time to spur growth.

“We Need to Invest in Infrastructure Faster”

Many economists predict China will report July-September growth dropped below the 7% mark. This would be the first time since the Global Financial Crisis of 2007-2008.

According to a top state adviser, there are two ways to quickly stabilize China’s economic growth. First, investment in China infrastructure must happen at a quicker pace. Second, China’s central bank must lower the cost of financing for companies.

Yu Bin at the State Council’s Development Research Centre, said that the above two methods are the only ones. That’s because manufacturing and property investment are both weak.

He added that China especially needs to speed up its hydropower projects. The nation’s 53 million hectares of high-standard agricultural land must also be developed.

Several authorities in Beijing also acknowledge growing concerns over the Chinese economy. Xi Jinping, president of China, said he was concerned about the Chinese economy too. He did not specify any further though.

China Infrastructure Investment to Revive Growth

With acknowledgement from top authorities in Beijing, a series of actions aimed at improving the Chinese ecnomy situation are being carried out.

One goal is accelerating construction investment. The government is trying to lure more private financing through increased use of public-private partnerships (PPP). Otherwise, the public would bear the cost.

According to China’s Ministry of Finance, there were 206 proposed PPP projects valued at 659 billion yuan (US$104 billion) in total. The ministry also started a 180 billion yuan fund with some of China’s largest financial institutions to invest in PPP projects.

One state adviser called for the central bank to lower the cost of financing for companies, making it easier to obtain credit.

But China already did that. They cut benchmark interest rates five times in a short period and lowered the reserve requirement ratio for lenders. With that said, some analysts hope the central bank will cut interest rates even more.

According to Yu, China should also propose new measures to encourage companies to merge and restructure. He said bankruptcies will naturally occur to fix problems such as mismanagement and lack of competitiveness.

Will China infrastructure lead to the nation’s much needed economic revival? Time will tell.

About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's experienced with trading stocks and buying property in Thailand, Cambodia, and elsewhere. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.